With legislation and litigation, Vermont joins a battle against pharmaceutical middlemen

Last week, Vermont Attorney General Charity Clark announced a lawsuit against pharmacy benefit managers, notoriously opaque companies embedded within the prescription drug supply chain.

The lawsuit comes two months after Gov. Phil Scott signed Act 127, a law that sets out restrictions on how pharmacy benefit managers, often abbreviated as PBMs, can operate in Vermont.

Those moves are local examples of what has become a wave of nationwide attention — and frustration — focused on PBMs. In the past few years, multiple states , including Hawaii, California, Indiana and Ohio, have filed suit accusing PBMs of hiking up drug prices with anticompetitive behavior. The Federal Trade Commission is also scrutinizing PBMs and is expected to file a lawsuit soon, national news outlets have reported.

“Prescription drug prices are through the roof, and policymakers and state leaders of course are looking at why,” Clark said in an interview. “And as attorney general, when I can see that one of the causes is PBMs, and I have the authority to act when I see that they have violated the Consumer Protection Act — I of course am going to act.”

PBMs negotiate behind the scenes with health insurance plans, drug manufacturers, and pharmacies over the cost of medication. The companies contract with health insurance companies to determine that plan’s formulary, a list of which drugs are covered by a health plan and to what extent.

Vermont’s lawsuit accuses two PBMs — CVS Caremark and Express Scripts, which is owned by the health care company Evernorth — of violating Vermont law and driving up drug prices for their own profit. The two companies account for 95% of Vermont’s drug market for commercial health insurance plans, according to the Vermont attorney general’s office.

PBMs have disputed such allegations. In emails to VTDigger, spokespeople for Evernorth and CVS blamed drugmakers for high prescription drug prices and said that PBMs actually act as a check on pharmaceutical manufacturers.

“The fact is that without PBMs, consumers would likely pay more for their drugs at the pharmacy counter,” Mike DeAngelis, a spokesperson for CVS Health, told VTDigger.

‘Unfair or deceptive acts’

Vermont’s 98-page lawsuit outlines various ways in which the two PBMs allegedly skim money from drug transactions. PBMs’ power over a health plan’s formulary gives them substantial leverage over drug manufacturers. If a specific medication is excluded from a health insurance plan’s formulary, the complaint says, the company that makes that drug stands to lose out on the profit when it is prescribed.

With that leverage, the suit claims, PBMs are able to extract money from drug companies in the form of fees and rebates — payments they receive when specific drugs are dispensed to a health plan’s members.

PBMs also use that power to keep cheaper drugs off of formularies — meaning, more cost-effective drugs might not be covered by patients’ insurance, according to the suit, because more expensive drugs equate to higher profits for PBMs.

Because CVS and Evernorth are part of larger health care conglomerates, they also use their power to drive business to pharmacies that they own, and under-reimburse other independent pharmacies, the suit reads. PBMs are also able to classify various drugs — even generic ones — on health plan formularies as “specialty” drugs, allowing them to hike prices for those medications, the suit alleges.

“As a result of the substantial increase in costs and formulary exclusions, some Vermont patients have been foreclosed from access to the drugs that they need to stay healthy or, in some cases, to even stay alive,” the lawsuit reads. “Patients who can no longer afford their medications are often forced to ration, skip doses, and/or otherwise not adhere to the treatment plans prescribed by their doctors.”

Vermont’s lawsuit accuses PBMs of violating the state’s Consumer Protection Act, which prohibits “unfair methods of competition in commerce and unfair or deceptive acts or practices in commerce.”

The suit is seeking a judgment that the defendants violated the act, restitution to Vermonters, a civil penalty of $10,000 per violation, a ruling that PBMs “disgorge all profits” tied to their violations of the law, and a permanent injunction barring the companies from using those tactics in the future.

“Some of the examples that we uncovered are, I mean, disturbing — the difference between what consumers were paying and what they could be paying if only the PBMs hadn’t been involved,” Clark said. “So I’m looking forward to continuing this case and holding these two companies accountable, because what they’ve done to Vermont consumers is a travesty.”

PBMs, however, say that they actually work to bring drug prices down for consumers. Spokespeople for the defendants in the lawsuit said that their work is actually beneficial to the people their plans cover.

“The prices of medicines are set by their manufacturers, who have raised list prices repeatedly,” Madeline Ziomek, an Express Scripts spokesperson, said in an email. “We work to combat the pharmaceutical industry’s high prices and lower the cost of thousands of medicines for patients and their health plans, and the data shows that we succeed. Our members paid less out of pocket for their medicines in 2023 than they did in 2022 despite manufacturers’ price increases.”

Mike DeAngelis, a spokesperson for CVS Health, made a similar argument.

“Our number one job as a PBM is lowering drug costs, and we go head-to-head with drug manufacturers to negotiate discounts that help lower the cost of prescription drug coverage,” DeAngelis said in an email. “Allegations that we play any role in determining the prices charged by manufacturers for their products are false, and we intend to vigorously defend against this baseless suit.”

‘So complex’

Clark’s lawsuit comes two months after Vermont passed Act 127, a law aimed at restricting what PBMs can do in the state. That law creates a licensing system for all PBMs operating in Vermont and places limits on how PBMs can do business with pharmacies and health plans.

For example, the law prohibits “spread pricing,” a practice in which PBMs charge a health insurance plan and patient one amount for a drug, and then reimburse a dispensing pharmacy for less than that amount — pocketing the difference. Another example: PBMs cannot prevent pharmacies from “selling a more affordable alternative (drug) to the covered person if a more affordable alternative is available.”

Most importantly, Act 127 gives the Department of Financial Regulation oversight over the entities, the bill’s primary sponsor, Rep. Mari Cordes, D-Lincoln, told VTDigger in May.

“DFR will be able to gather information about the PBMs’ practices and have the ability to regulate them, regulate their practices, oversee their practices and enforce the Vermont law,” she said then.

Despite the timing, Clark said that the new regulations regarding PBMs are not relevant to the lawsuit. The case has been in the works since last year, she said.

“That’s not a law that’s on my radar, because it’s not the law that I’ve used to sue,” she said.

But on Monday, Cordes said that nationwide action against PBMs — from regulators and litigators — comes as health care companies have consolidated market share and as public awareness of PBMs has grown.

The companies use practices “that are designed to make PBMs more and more powerful and more and more insulated from the market and from regulation,” Cordes said. “And it’s so complex, it’s hard for people to understand.”

Read the story on VTDigger here: With legislation and litigation, Vermont joins a battle against pharmaceutical middlemen .